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(No.1 High-Tech News Site in Japanese)

  • Japan's Finance Industry Draws Measures for Year 2000 Problem
  • September 14, 1998 (TOKYO) -- Many media articles claim Japanese financial institutions are slower to tackle the millennium date-change issue than their U.S. counterparts, but the opposite is true, says Nikkei Computer magazine.
    System divisions in the Japanese financial started to take the initiative in providing solutions to the Year 2000 problem long before U.S. industry began to be aware of it. They were driven by significance of the problem. However, few Japanese banks and financial institutions told the truth about their efforts to the U.S. side, which is seemingly the reason the Japanese were considered slower in taking Year 2000 measures. Nikkei Computer magazine discovered the following facts.

    Japan's Media Reports Japan is Reluctant on Y2K

    In Japan, media such as Nihon Keizai Shimbun (Nikkei), Inc., The Yomiuri Shimbun Inc. and Asahi Shimbun Publishing Co. treated the Year 2000 problem in information systems as a primary news story around late July and early August.

    Nihon Keizai published an article with the title, "Warning to Japan's Response," in its morning edition on July 24. The article, with a focus on various sectors including the financial sector, cited the U.S. attitude manifested in a July 22 trial at U.S. stock exchanges and securities companies. The paper said "there is no denying a delay in Japan's response (to Y2K)." As an example, it pointed to an interconnectivity test of the Bank of Japan's financial network system that will start at the end of 1998.

    Asahi's editorial of Aug. 14 said: "Japan's moves are slow. Especially...we are worried about our financial institutions." It concluded that even if the delay should continue, "Japan must not be a cause of another world crisis in terms of information systems."

    Why Moody's Said Japanese Banks Weren't Ready

    In May this year, America's ratings company Moody's Investors Service issued a report titled "Heading Toward Judgment Day," which many observers in the Japanese financial world consider a trigger for the emerging awareness of the "delay of Japanese financial institutions taking measures."

    "There are a lot of question marks about major Japanese banks' degree of preparation for the Year 2000," the report said.

    Ryan O'Connell, a Moody's analyst, wrote, "Unlike other global banks, the Japanese say that they do not have any major problems -- and how they achieved that happy state of affairs is a mystery," after he had met executives of banks of the United States, Europe and Japan.

    The reason why he was skeptical is that an interviewed Japanese bank confessed that it bank had no significant problems and no plans to spend a large sum of money to handle the issue, though the name of the bank wasn't revealed.

    As a consequence, the Moody's report seemed to be oriented to emphasize high levels of awareness by U.S. banks' management over the Year 2000 problem, and recognize their projects and huge budgets.

    By contrast, Japanese banks were described as being driven by emergencies such as huge bad loans and a recession, without much scope for fully tackling complicated computer problems.

    Though it is true that Japanese banks have been busy dealing with urgent issues such as bad loans, what the report said about Japan's millennium bug problem is not true, Nikkei Computer said.

    Nikkei Computer approached several Japanese banks and found that the Y2K problem is not as critical in Japanese banks as in U.S. banks, and hence they don't have to invest as much as U.S. banks do to correct the problem.

    Prospects for degree of preparation at Japan's financial institutions for the Year 2000 problem are bright. This does not mean that Japanese banks have worked out any sort of secret plans. It is simply because the in-house information system division of each company has been taking the initiative in providing solutions to the millennium problem following a long-term plan.

    Solutions Provided in Third-Generation Online System

    Japanese banks ran a project called The Third Generation Online System between 1987 and 1992. It was followed a little later by securities and insurance companies. In the project, they had applications and databases modified across the board.

    Mainframe makers participating in the project confirmed that in principle they modified their calendar systems so that four-digit expressions on databases are usable. A host of financial institutions explained that the system division of each institution was aware of implementing measures for individual programs to cope with Year 2000 four-digit dates in their daily maintenance operations.

    Japan uses unique names of an era, the so-called Emperor calendar, as well as the Christian calendar system. With simultaneous use of the two different calendar systems, "System divisions of financial institutions made descriptions of logic of calendars independent of a program as a contrivance to make maintenance easy," said Teiichi Aruga, senior managing director of CSK Corp. Aruga is well informed about systems in both Japanese and U.S. banking institutions. This experience helped Japanese companies achieve a smooth transition from Showa to Heisei, the names of two different Imperial periods, which occurred 10 years ago.

    Surveys on the Year 2000 problem conducted by the Bank of Japan and others often present results such as "48.3 percent of the total have completed establishing measures in accounting systems as of the end of June 1998." However, that does not mean an overall delay in Japan's Y2K, for many companies in the financial sector have schedules which set the goal, or completion of solution implementation, at mid-1999 or before.

    U.S. Financial Institutions Have More Difficulties

    "Frankly speaking, it is apparent that U.S. systems development is not so well organized as Japan's," said an executive of IBM Japan Ltd., who is an expert in systems both in Japan and the United States.

    In general, systems units in U.S. companies have a narrower scope of responsibility in comparison with their Japanese counterparts; therefore field business divisions often change systems without consultation with them. Furthermore, engineers in systems and business units usually don't stay long in one position.

    This leads to difficulty in discovering trouble points in a system.

    In case no problems are found in a system, the system continues to be in operation for decades. Once a decade Japanese companies usually replace an old system completely with a new one, which is not a practice in the United States.

    What poses a significant problem in U.S. systems is "there is no need for conversion of a calendar system to another, so most calendar logic is directly embedded in programs," said Aruga of CSK.

    Other factors also exist. The original developers may have already left work, and related documents are rarely found. The remaining engineers have to check large-sized programs literally step-by-step, going through source files. These conditions together seem to snowball, and make it hard to solve the Year 2000 problem. That often leads U.S. banks to spend a lot more money than Japanese banks.

    Japanese banks have some problems of a different nature as well. They employ too many in-house engineers, which pushes costs up, and they continue periodic modification of programs, including those of less strategic value. However, as to the Year 2000 problem, Japan has had a better chance of finding easier solutions, the Japanese magazine said.

    Nikkei Computer found that as has been noted, it is apparently a wrong notion that the Japanese financial sector, apart from other industries, is slower in coping with the millennium problem than U.S. companies.

    Even so, strong policies for intensely investigating the progress of solving the Year 2000 problem have been set forth by the Financial Inspection and Supervision Agency, the Bank of Japan and the Tokyo Stock Exchange, probably in response to some guidance presented by the United States.

    "We have prepared for the Year 2000 with a long-term plan, and are seeing reasonable progress. The further investigation they said they'll do makes no sense to me," said a system department manager of a property insurance company.

    (Nobuyuki Yajima, Associate Editor, Nikkei Computer)

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    Updated: Sun Sep 13 09:52:20 1998 PDT